Q&A: Former Fed Official Poole on Bernanke and Politics

During his time as president of the Federal Reserve Bank of St. Louis, William Poole was known for saying what was on his mind. He did so in late July when he concluded that Fed Chairman Ben Bernanke had risked the central bank’s political independence through his policy actions and therefore “does not deserve reappointment.”

Now Mr. Poole, who stepped down from the Fed in March 2008, says he’s worried about measures in Congress that would curtail the central bank’s independence on monetary policy. We talked with him about some of the heat on the Fed and Senate Democrats’ proposal to alter the governance of the 12 regional Fed banks. Excerpts:

How is Chairman Bernanke faring politically?

I think Chairman Bernanke was insufficiently sensitive to the political risks that he was creating for the Federal Reserve by his extraordinarily expansive interpretation of the Federal Reserve Act. That now is what’s coming to pass. … The origin of the situation today is that the Federal Reserve’s widespread activity in what are basically fiscal policy decisions — in granting credit to various private entities — has raised issues about whether the Federal Reserve has exceeded its appropriate authority.

What about the attacks on the Fed for its regulatory record?

There’s a widespread perception of Federal Reserve regulatory failure. I think the Fed has gotten a bum rap on that. Much of that is Monday morning quarterbacking. Of course, Congress itself is not without blame in the whole housing fiasco. So some of this may be scapegoating the Fed for what happened. I think there were terrible failures in risk management in the banks, investment banks and hedge funds that bought the subprime paper, and I don’t excuse that at all. But certainly the federal government contributed mightily through Fannie Mae, Freddie Mac and all of its encouragement of subprime lending.

What do you think of the proposal (by Senate Banking Committee Chairman Chris Dodd) for the White House to appoint the chairmen of regional Fed bank boards?

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